Indian IT beats manufacturing in job creation

The information technology sector led by the top three listed companies, TCS, Infosys and Wipro, created the most jobs in the five years to FY11 compared with other sectors, boosted by an over two-fold jump in aggregate revenue.

The analysis by ET Intelligence Group of the trend in job creation by the organised sector reflects the rising clout of services companies. Of the 14.3 lakh jobs created between FY06 and FY11, over 8 lakh (56%) were added by companies in the services sectors, which includes banking and finance, healthcare, hospitality, technology, telecom, trading and retail. These companies created four out of seven jobs in the country over the past five years, far outpacing the manufacturing sector.

IT sector players led the pack, adding as many as 4.5 lakh employees. TCS, Infosys and Wipro together added 2.4 lakh people, or more than half the total additions for the sector. These companies were also the top three job creators in the country, in that order, during the period.

The data is based on the hiring trend of a sample of 600 listed companies that reported annual financials along with headcount information since 2006.

Changing trend in GDP

"The findings are a reflection of the changing trend in India's GDP composition. As in other economies, we have gradually shifted from the agrarian phase to the services phase. But, in the process, we sort of skipped the manufacturing phase," says Ma Foi Randstad's MD and CEO E Balaji. Ma Foi is a Chennai-based staffing and HR services firm.

Manufacturing takes backseat

The data reveals the proportion of services sector jobs in the total headcount of the sample rose to 46.5% in FY11 from 41.8% in FY06. The sample companies expanded the aggregate headcount by 48% to 43.8 lakh employees between FY06 and FY11.

Manufacturing jobs did increase by 35% to 23.3 lakh during the period, but at a much slower pace compared to the 66% growth in services sector employment.

Manish Sabharwal, who heads temporary staffing company TeamLease Services, believes the increasingly capital-intensive nature of India's manufacturing businesses is a major reason for lower job creation in the sector. Besides, the rising trend of shifting production and employees off the balance sheet through sub-contracting and temporary workers has also reduced the payroll of manufacturing players, he adds.

Sabharwal says just 12% of the total jobs in the country are now created by the manufacturing sector. "Bigger manufacturing companies have replaced people with machines, thereby escalating capital intensity. It is a mistake that needs immediate improvement. The country needs low-skill and high-productivity manufacturing," he adds.

The falling share of manufacturing in new jobs creation is also worrisome since this would curtail low-skill employment. Given its requirement for high-skilled people, the services sector alone will not be able to cater to the rising workforce in the country, experts say.

Ratings firm CRISIL's Chief Economist DK Joshi believes manufacturing has to emerge as the critical employment generator in future.

"In the next 10 years, 120 million people will join the workforce (in India). Where are we going to employ them if not in manufacturing?" Joshi says the new manufacturing policy, approved in October, will play an important role in job creation.

Indian IT: Freshers number up, salary stagnant

Right in the middle of the placement season in 2010, at one of the popular Tier 2 engineering colleges in Mumbai, Rohith, 21, decided not to sit for any placement tests. In 2008, when his sister passed out of the same college, she was recruited by one of the top IT services companies and was offered an annual package of Rs 3 lakh. Three years down the line, Rohith and other aspiring software engineers of his batch were offered the same package to be part of what they considered the most exciting industry. India's IT firms recruits an increasing number of fresh graduates every year and is one of the largest white-collar employers. But the packages offered to campus hires at most Tier 2 engineering colleges have remained unchanged since the 2008-09 downturn, stagnating between Rs 3 and Rs 3.5 lakh. While the demand for IT and IT-enabled jobs remain high, placement coordinators and students say more Indian IT firms have refused to hike fresher salaries. And the clear reason for this: growing availability of good talent and a spurt in engineering colleges in the past three years. India has the largest technical and scientific manpower globally and total graduate outturn - the number coming out of colleges - across sectors has doubled over the last decade enabling greater scalability for customers. The outturn of technical graduates and post graduates increased to over 7 lakh in FY11 compared to a little over 5.5 lakh in FY10, says Nasscom in a report earlier in the year. Enrolment in technology colleges in the same period increased sharply from 12 lakh to 16 lakh. "Being able to work for one of the top 5 IT companies is a big thing among students. The entry-level salary in most of the IT companies such as Infosys, Wipro , TCS and Cognizant have remained between Rs 3 lakh and Rs 3.25 lakh since 2008. Even if they offer the same package in future, demand for these jobs is not going to come down" , says Varkey Philip, who heads the placements committee at the Rajagiri Institute of Engineering and Technology at Kochi. He says IT is still the most preferred for most engineering graduates. At RV College of Engineering in Bangalore too, entry-level salaries are stagnant at the pre-2008 recession level. While companies like Oracle and Microsoft offer between Rs 6 lakh and Rs 8 lakh to freshers, Indian IT companies, which recruit more, offer Rs 3.5 lakh on an average. NS Narasimhan, director of placements and training at RV College, says colleges are only worried about getting all the students placed, and not about the level of their salaries. "Most of the graduates work for a year or two and make the most out of your new job and experience. Colleges are only worried about getting them the job. Companies are not going to witness a supply shortage and hence they are not compelled to raise salary packages", he said. Low entry level salaries are the biggest leverage for Indian IT firms to keep costs low. Most maintain a 60:40 ratio of freshers versus laterals. Most Indian IT firms also have to invest significant amount in training freshers to get them job ready. At Infosys for one, freshers go through an average of 3-6 months of training before becoming billable. Nasscom pegs training spends per employee in IT-BPO among the highest in the organised services sector. At iGate, which would offer annual packages of between Rs 3.1 and 3.25 lakh to campus recruits this year, salaries have gone up marginally over the past three years. Srinivas Kandula, Head of HR operations, says that the entry-level salary remains stagnant because companies cannot afford to increase the cost. "It is a cost to the company. We invest on the freshers," he said. "In fact, fresher salaries have gone up marginally, probably by 5%. Companies invest heavily on training and upgrading talent. Raising entry-level salary can have a cascading effect. Unless there's a significant change in demand-supply, this trend is likely to continue," says P Thiruvengadam senior director at Deloitte India. There has also been an increase in supply of good quality talent cited as major concern by IT firms for over a decade. Three years back, Anna University in Chennai was the only place where IT firms made 1,000-plus offers every year. But now, there are at least six such universities where companies have made offers to over 1,000 students in a year. TCS at Sastra University, Cognizant at VIT and Amrita University, Infosys at Amrita University and Accenture at Amity are top examples. "In the last few years, the quality of engineering graduates passing out of premier institutions across India has gone up significantly. We believe that this is because of a variety of reasons: stronger industry-academia linkage programmes, greater student connect with their predecessors through social networks, increased number of seats in reputable institutions, increase in the number of colleges especially those run by corporate houses, and so on," Shankar Srinivasan, Chief People Officer of Cognizant said. HR experts say Indian IT has lost the power to increase prices as costs have risen and the industry has matured. This too is causing salaries to stay flat.